Finanze® Daily Digest - 28/10/2022

The Brief: Estate agents have observed an uptick in property enquiries from US investors who are looking into purchasing UK real estate, according to a report.

Why It Matters: The fall in the pound against the dollar has made it cheaper for American buyers to snap up UK properties because they can better take advantage of the exchange rates that are in the greenback’s favor.

Finanze® Foresights: This is reminiscent of what transpired in 2016 when the pound slid to a 31-year low after the Brexit vote. Wealthy Chinese and Arab investors took advantage of the UK property market when most real estate assets were a bargain. A year ago, a £350,000 flat in London would cost a foreign buyer $472,290, but if he delayed his purchase to today, he would only pay $404,355* (assuming there was no price change). That’s more than $67,000 in savings based on the current exchange rate. And with the continued deceleration in property price growth, foreign buyers have a better advantage against local investors who need to contend with higher mortgage rates and easing real income. But while this is boon for overseas buyers, it may be a disadvantage for the country when the rise in foreign demand for properties would trigger a surge in house prices just like what happened in New Zealand where excessive foreign investor buying eventually priced out local buyers in the market. This led the government to only allow off-the-plan apartments in permitted developments to be sold to non-residents. However, the same policy may not work in the UK for now. Banning foreigners from investing at this time will meet strong opposition from sellers who can command all-cash sales at a premium from offshore buyers such as Hong Kong nationals who now own more than 23,000 properties in England and Wales.

*£1 = $1.1553

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